This Act will seek to protect the rights of the members and the retirees without inhibiting the possible array of schemes. The new legislation is to be enacted to provide for the proper regulation of all Pension/Superannuation Schemes and Approved Retirement Schemes, the Trustees, the Administrators and Investment Managers.

The result of the original recommendations on the reform of the pensions system, the enhanced proposals in the Green Paper and the suggestions of the public, form the basis of the proposed National Pensions Act. The legislation to be enacted will be sufficiently comprehensive so as to protect the members' interests, without stifling initiative.

The following areas are vital to the effective regulation of pension and superannuation schemes:

Licensing and Registration Requirements

• All approved pension funds established in Jamaica must be registered with the FSC.
• All managers/administrators of Pension funds must be licensed.
• All trustees of Pension Funds must be registered by the FSC.
• Licenses/Registration can be canceled/revoked for cause/refused.

(i) Licensing of Institutional Investors

All institutional investors of pension funds must be licensed by the FSC, in accordance with the following criteria:

• the applicant's adherence to standards of sound business and financial practices in its operations;

• the ability of the applicant to meet the legislated fit and proper requirements with respect to key personnel.

• the strength and quality of the applicant's management;

• the adequacy of the applicant's capital.

(ii) 'Fit and Proper Persons' Requirements to be applied in the licensing of Trustees, Managers and Institutional Investors

In processing applications for licenses, the FSC will evaluate the Trustees, Managers, and prescribed key employees of the Institutional Investors, based on, inter alia, the 'Fit and Proper Persons' requirements outlined below:

• the person shall not have been convicted of an offence involving dishonesty, whether in Jamaica or elsewhere;

• the person is not an undischarged bankrupt;

• the person's employment record and business conduct and dealings do not give the FSC reasonable cause to believe that the person carried out any act involving dishonesty or impropriety;

• the person, in the opinion of the FSC, is of sound probity, is able to exercise competence, diligence and sound judgement in fulfilling his responsibilities in relation to the pension fund, and whose relationship with the fund will not threaten the interests of the members; and for the purpose of this paragraph the Commission shall have regard to any evidence that he has:

  • engaged in any business practices appearing to the Commission to be deceitful or oppressive or otherwise improper, and which reflect discredit to his method of conducting business;

  • contravened any provision of any enactment designed for the protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of financial services, or in the management of companies or due to bankruptcy.

• the person is not of unsound mind.

(iii) Registration of Pension Funds

The Trustees of a pension fund will have to apply to the FSC for registration of that fund. In processing the application, the FSC will evaluate the fund based on the criteria outlined in part (iv) below.

If ALL the requirements are met, and both the Trustees and Managers of the fund have been appropriately licensed, the Pension Fund will be registered to legally operate in Jamaica. Application for tax exemption must be preceded by registration.

(iv) Conditions for Registration of Pension Schemes

The FSC shall not register a pension scheme unless the scheme satisfies all the conditions set out below:

(a) The pension scheme shall be established in Jamaica in connection with some trade or undertaking carried on solely or partly in Jamaica.

(b) The pension fund is bona fide established under irrevocable trust.

(c)

• The principal purpose of the scheme must be the provision of a pension (or an annuity) on retirement at a specified age or ages or upon earlier retirement as provided for in special circumstances.

• The specified normal retirement age shall not be less than age 60 years, with provisions for earlier/later retirement in special circumstances. Early retirement should be allowed no earlier than 10 years before the normal retirement age except on ill-health grounds.

• The maximum rate of pension accrual is 2% of final pay per year of service.

• The maximum pension must not exceed the limits Statutorily prescribed from time to time. It has been recommended that the maximum annual pension must not exceed the limit on retirement of 75% of salary (as defined in the Income Tax Act) at retirement after a minimum 37 1/2 years of service with the employer/employers, or proportionately less for shorter service.

• Pension increases may be granted above this level after the date of retirement, but not exceeding annual changes in the CPI.

• Lump-sum benefits may be provided on death, but must not exceed the higher of 2 years' salary and the member's contributions accumulated with interest.

• Lump-sum benefits on termination of employment:

  • vested member - member's voluntary contributions accumulated with interest, subject to a penal rate of tax on the interest.

  • non-vested member - refund of the member's voluntary and compulsory contributions accumulated with interest.

• Lump-sums at retirement in commutation of up to 1/4 of the pension should be allowed. The maximum lump-sum should not exceed 12.5 x (1/4 of the pension). Small pensions may be commuted in full. (It is suggested that $300 per month be used initially as the designated figure for small pensions.)

• Reckonable years of service with a previous employer, or other added years, in respect of transfer values brought in, must be allowed.

• Enhancements for disability/ill-health retirement should be allowed.

(d) The sponsoring employer must be an ordinary annual contributor to the pension scheme.

(e) In no circumstance, may a cash amount representing the employer's contribution, be paid to the employee. The benefits of the employer's contribution must be in pension form.

(f) In any circumstance, an employee who has more than 5 years' membership in a scheme, may ONLY be repaid his voluntary contributions, subject to a penal rate of tax. If an employee has more than 5 years' membership in the scheme then the accrued benefit entitlement (less the voluntary contributions - if encashed) must be preserved in the scheme and paid as a benefit on retirement or, alternatively, the value of the preserved benefits can be transferred to another registered scheme the employee is joining, or a registered Approved Retirement Scheme. This preservation requirement will only apply to years of membership, and contributions, after the effective date of the legislation. Refunds of employees' contributions may therefore be made regardless of years of service, in respect of service and contributions up to the effective date of the legislation.

(g) The contributions made by an employee in a scheme year must not exceed 10% of the employee's remuneration in that year. For the self-employed, the contributions must not exceed 20% of earnings in the year.

(h) Where members' contributions are required these must be deducted from earnings and be paid over to the Trustees/ Administrator within one week of the deduction date.

(i) The ordinary annual contributions made by the employer to the scheme must not exceed 10% of remuneration. Deficiency payments are allowable but these must be to defray identifiable deficiencies certified by an actuary.

(j) The contributions to the fund by the employer and the employee shall be mutually recognized by both parties as a condition of employment. That is, membership in the scheme must be compulsory for the employee.

(k) Pensions cannot be paid to employees who retire on a voluntary basis earlier than 10 years prior to the specified normal retirement age of the scheme, but no earlier than age 50.

(l) Suitable winding-up provisions must be outlined in the Trust Deed.

(m) Minimum solvency requirements must be met.

(n) Pension rights cannot be assigned.

(o) A member may allocate a portion of his/her pension in favour of a spouse or dependent.

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May 2001

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